Dropshipping is a method of outsourcing stock management and deliveries, and is an obviously attractive option for e-commerce entrepreneurs who don't have the time and resources to manage all of their stock and logistics themselves.

There are pros and cons to it, and we at Sayl Retail take no official position as to what is the best option, but we do want to walk you through dropshipping's advantages and disadvantages.

Advantage 1 – No stock management

Dropshipping eliminates stock management. No more shuffling through packed hangars or dusty back-office rooms. This is especially attractive if you're just starting up and running your business from home, or when you want to cut down on office space to lower your rental costs and business taxes.

Advantage 2 – Cost control

In turn, this leads to less capital requirements and less administrative overhead, allowing you to focus on growing your business instead of tedious busywork. You have more time to engage with your customers, try out marketing tactics or work on sales leads. In other words, you get more time to actually drive your business forward.

Advantage 3 – Scalability

An additional advantage is that dropshipping lets you scale up or down your business easily and quickly as your customer base grows, changes or (we hope not) shrinks. It's all left to someone else to worry about. If you do it all by yourself, scaling is harder to accomplish or has a certain hard limit.

Advantage 4 – Variety

If you think of stock-keeping as a sort of hard drive, then dropshipping is the cloud. This means you can offer a wider variety of products to your customers without having to worry about storage space. This may drive more revenue or cause a greater response from your (potential) customers.

Advantage 5 – Professional support

While a DIY mentality is certainly admirable, there are limits to every person's skill set, and it's unlikely that a born entrepreneur is also an expert at logistics and supply chain management. By outsourcing stock-keeping to people who do this for a living – and quite literally, since being good at this is what makes or breaks their business – you are assured of professional handling and stocking.

Disadvantage 1 – Low margins

But of course, there are disadvantages, too. The most glaring one is a lower margin on your products, since your dropshipping partner takes part of your revenue. So either you raise your prices, or you accept that you may have lower margins but sell greater volumes, even though that last bit isn't guaranteed.

Disadvantage 2 – Dependency

If your dropshipping partner collapses, so does your business – or you'll at least find yourself in hot water. You have no control over what they do. You can mitigate this by having several partnerships, but these will have a cumulative effect on your margins and will ironically reintroduce some overhead.

Disadvantage 3 – No quality control

Is a customer unhappy because their product arrived broken or its box was dented? They'll blame you for it, not your third party. You have almost no leverage over your dropshipping partner, especially if you're just a start-up. Of course, any sane partner would try their best to keep you happy, but not all businesses care about all customers equally – neither will you.

Disadvantage 4 – Less flexibility in pricing

If you manage your own stocks, you can set pricing pretty much on-the-fly. Dropshipping will undercut this, not just because of the margin issues discussed earlier, but also because there will be a middle man responding to your price change requests. This also means you won't be able to haggle with customers who want a custom-based offer from you – though this may be a blessing in disguise for some entrepreneurs.

Disadvantage 5 – Limited customer service

You can't add personal notes to your packages when you dropship and your customer proximity will be limited. With logistics out of your hands, you must put faith in your dropshipping partner that they will step up to the plate and make the customer experience a good one for your end buyer. It's a good idea to do some reputation research first if this area is especially important to you. The more expensive and upmarket your product is, the more people will expect corresponding service levels.

Conclusions

So, when you count the pros and cons of dropshipping, what really matters is how you weigh all these factors against each other.

Perhaps you don't mind slimming down your margins because you find stock management incredibly tedious. Perhaps you are a bit of a control freak and don't mind losing some time and energy if you know you have delivered the best possible service. It's up to you.

What do you think? Do you agree or disagree with our notes? Do you have experiences with dropshipping and would like to let us know how it went? We'd definitely like to hear from you. You can always drop us a line via hello@saylretail.com, reach out via Facebook or Medium, or fill out the contact form.

Join us next time for more about dropshipping and how you can get the most out of it.